True that...it used to be that PMs were a sure thing to guard against economic hardships...but now we have to worry about manipulation and the EOs that could nationalize all PM holdings...including YOURS.

As in the Past it is Today : HELL hath no Fury like a Woman Scorned be it 1 / 2 or 3 Years or One /Two or Three DECADES.
gbI have come to the conclusion "Anonymous Sources" are those little voices PROGS and LameStreamMedia hear in their heads. "Russia,Russia,Russia"

"DONALD J. TRUMP a President without a Party but a Nation Has His Back". - Gb

" We have gold because we can not trust our governments". - President Herbert Hoover , 1933

Morphing

If a retirement or should I say a desire to accumulate wealth is not on a persons radar, life changes can be difficult to handle. I know of people that contribute to company sponsored plans but can't make ends meet. These people do not spend frivolously. The cost to live can outweigh the ability to save. Seems every time a person turns around, money goes to some necessity.

The U.S. government has been issuing more debt, but it’s not getting more foreign buyers in the door. As a result, U.S. investors have so far financed all of this year’s increase in the federal government’s borrowing.

We’ve posted before on Mayberry v. KKR, a potentially trail-blazing case in which beneficiaries of the destitute Kentucky Retirement System are suing three major fund managers, KKR, Blackstone, and PAAMCO, over dedicated hedge funds they created that promised high returns at low risk only to perform worse than cash. As we will discuss shortly, the parties to the litigation had a hearing yesterday over the defendants’ motions to dismiss. The judge is expected to rule in two weeks. Former Kentucky Retirement Systems trustee Chris Tobe attended the hearing and based on that and his knowledge of the case, thought it was likely to proceed.

Background of Pathbreaking Breach of Fiduciary Case
The suit charges breach of fiduciary duty and names a whole load of parties in addition to the three big fund managers as defendants, including Kentucky Retirement System’s fiduciary counsel, Ice Miller, current and former directors, former senior employees, several financial advisers, its actuarial adviser, and even the firm that certified Kentucky Retirement System’s Comprehensive Annual Financial Report. Our recap of the suit from a January post (which includes the initial filing):

The fund managers allegedly focused on KRS and other desperate and clueless public pension funds who were unsuitable investors, particularly at the risk levels they were taking. KRS made what was a huge investment for a pension fund of its size. $1.2 billion across three funds all at once, in 2011, roughly 10% of its total assets at the time. They all had troublingly cute names. The KKR/Prisma funds was “Daniel Boone,” the Blackstone fund was “Henry Clay” and the PAAMCO fund, “Colonels”.​

​

In the case of KKR/Prisma, the fund had installed an employee at KRS as well as having a KKR/Prisma executive sitting as a non-voting member of the KRS board. The filing argues that that contributed to KRS investing an additional $300 million into the worst performing hedge fund even as it was exiting other hedge funds. 1​

​

The suit seeks damages for losses, recovery of fees paid to the hedge funds and other advisers, and punitive damages. The damages would go to KRS and the suit also asks that the court appoint a special monitor to make sure the funds are invested properly.​

​

Some observers may be inclined to see this litigation as having only narrow implications, since KRS is fabulously underfunded, at a mere 13.6% funding level with only $1.9 billion in assets, and famously corrupt. KRS not only saw its executive director and chief investment officer fired over a 2009 pay to play scandal, but more recently, it had the astonishing spectacle of having the governor call in state troopers to prevent the KRS chairman, Tommy Elliot, from being seated. 2​

​

Charming, no? But with so much bad conduct out in the open, it’s not hard to see why analysts might assume that Kentucky is so sordid that a suit there, even if it proves to be highly entertaining, is relevant only to Kentucky.​

​

That may prove to be a mistake. As one former public pension trustee said,​

​

This is the equivalent of going from a confrontation between the public pension industry and some people throwing rocks to a confrontation against the Soviet Army. Bill Lerach, the guy behind this is as serious as they come. Don’t let the fact that he was disbarred in any way fool you.​

Lerach’s wife is a Kentucky native and one of the lawyers representing KRS. Her husband’s firm, Pensions Forensics, is an advisor to this case.​

​

Lerach has a net worth estimated at $900 million, which is plenty of firepower to fund expenses on a case like this. Two different readers in Kentucky (neither of them Chris Tobe) separately informed me that the Kentucky attorneys pleading the case are formidable.​

​

This is the first time a deep-pocket plaintiffs’ firm has taken up a fiduciary duty case targeting major fund managers. As a result, it has caught the attention of public pension trustees. It was hotly discussed at the Council for Institutional Investors conference in January, for instance.

Progress So Far
The case made an important step forward earlier this year when Kentucky Retirement System decided not to join the case but made a supportive (and unusual) joint filing with the plaintiffs, embedded at the end of this post,, and indicated it reserved the right to take up the claims at a future date.

However, the plaintiffs have yet to surmount motions to dismiss from the many defendants. They made voluminous filings, totaling 658 pages of briefings and 1,122 pages of attachments, according to a memorandum by the plaintiffs. The various defendants were making factual arguments, which is improper at this stage of the process.

The hearing yesterday was to determine whether the complaint states a claim. It was not an evidentiary hearing.

When a trial court receives a Kentucky Rules of Civil Procedure (CR) 12.02 motion to dismiss, the court must take every well-pleaded allegation of the complaint as true and construe it in the light most favorable to the opposing party.

Nevertheless, despite to the counter-factual narratives presented by defendants in their filings, Tobe reports that the arguments in the hearing hewed largely to legal issues like arguments on standing and the statute of limitations. The plaintiffs did present their overview of the case in a slide deck below (Tobe got an embargoed copy pre-hearing; I gather the page 24 presented differed slightly from the one in the deck below).

Although I have some quibbles with parts of the argument like the use of the S&P 500 versus the returns earned by KRS (any pension fund would have a meaningful allocation to bonds, which would lead to lower expected results), the discussion of Kentucky fiduciary law, which is very specific and places very strong, explicit obligations on fiduciaries, in combination with the action of the principals of the various fund managers while they were “advising” Kentucky and later selling them on the idea of these hedge fund vehicles, is very well done. Two parts are particularly compelling. One is where the defendants try arguing that KRS was sophisticated. Materials produced by one of the hedge fund managers shows them describing recently-installed executive as rubes in the world of hedge funds. Another section contrasts how the hedge fund products were described in the marketing materials as high return with low risk, and contrasts that with how they were describe in SEC filings as high risk.

I hope Tobe is correct and the plaintiffs prevail. I’d also love to see a trial, or at least some serious discovery. However, the incentives of both parties will be to settle. So even if the judge gives the go-ahead for the case to proceed, the only way we are likely to see courtroom fireworks is if the defendants overplay their hand and aren’t willing to pay enough to make this go away.

Yves here. I am not terribly keen about this post but it’s important to keep up on the various proposals being made to deal with an escalating retirement crisis. Readers will look past the fact that this post promulgates the “Federal taxes fund spending” canard. And this economy needs more demand, not more savings.

As stocks go up and unemployment comes down, an increasing number of older Americans find themselves dodging bill collectors and spiraling into debt. Many warn of severe economic repercussions if this continues. But there’s more—large swaths of downwardly mobile seniors who thought of themselves as middle class is also a recipe for political chaos. Economist Teresa Ghilarducci, an expert on retirement security and Director of the Schwartz Center for Economic Policy Analysis at The New School, explains what’s happening and what’s at stake if we don’t fix it.

Lynn Parramore: A new report shows that American seniors are filing for bankruptcy at three times the rate that they did in 1991. But headlines say the economy is humming. Why are older people so broke?

Teresa Ghilarducci: The rise of the elder bankruptcy rate is no surprise, even if unemployment is low and stock values are up. Poor elders have terrible job prospects and very few households hold significant amounts of stock, bonds, and other financial assets. The erosion of retirement income security started decades ago.

LP: Can you explain what happened?

TG: In 1983, Congress and the President [Reagan] decided to restore Social Security solvency by cutting benefits and raising revenues equally. The FICA tax [Federal Insurance Contributions Act tax] was raised slightly and benefits were cut by raising the age people can collect full benefits from 65 to 70.

LP: As a Gen-Xer, that has always stuck in the craw because those years of collecting Social Security were taken away before I was old enough to vote!

TG: That’s correct. Though the political principal of equal revenue boosts and benefits cuts sounded fair, it was a nonsense way to make policy. Cutting the solution in half makes as much sense as King Solomon’s solution to cut the baby in half.

In 1983, the system needed much more revenue and not benefit cuts since there was no sign that voluntary actions by employers and workers would make up for the cuts. “Raising retirement ages” is a benefit cut. People can collect Social Security at age 62 and for every year they wait until 70, benefits increase on an average 6.34% per year. Therefore, those who can wait get a large boost and those who have to collect before 70 have a lifetime cut of over 11%.

Also, all the signs that private plans would fail were right. Instead of employers making pensions more available, generous, and widespread, more and more companies shifted financial risks of retirement savings to workers through a cheaper and less generous kind of pension: the 401(k).

Despite the hope that the do-it-yourself retirement accounts—401(k)-type plans and individual retirement accounts (IRAs)—would mean more workers would have some source of income besides Social Security, the retirement plan coverage rates of prime- aged workers has fallen from about 70% to close to 50%.

LP: So half of all workers don’t have a retirement account of any kind?

TG: That’s right. Another sign our retirement system has failed is that the median account balance of all people—including those who have an account from their current job or a past job; no account at all on the eve of retirement (age 55-64); or people who worked a full career under the defined-contribution employer pension revolution with ever-increasing tax breaks—is only $15,000. The low median account balance is because half of older workers have no retirement account balances at all, no 401(k)-type plan or IRA.

Let me repeat: almost half of all workers nearing retirement age will have nothing but Social Security to rely on.

For the lucky half who have some account balance in a 401(k) type plan or IRA, their median balance is $92,000. Spread that amount over a person’s retirement life and it will pay for a cheap dinner and a movie once a month.

LP: What’s going to happen if large numbers of people run out of money in retirement?

TG: If we do nothing to reform the current retirement system, the number of poor or near-poor people over the age of 62 will increase by 25% between 2018 and 2045, from 17.5 million to 21.8 million. That means real hardship and expensive responses by state and local governments through emergency housing, food assistance, and Medicaid costs.

There is another effect if we do nothing that could have serious political ramifications: middle class workers becoming downwardly mobile.

Inadequate retirement accounts will cause 8.5 million middle-class older workers—a whopping 40% of all middle class older workers (aged 55-64) and their spouses—to be downwardly mobile, falling into poverty or near poverty in their old age. This is unprecedented since Social Security was formed.

Boomers and G-xers will do worse than their parents and grandparents in retirement.

LP: What do you say to those who argue that the answer if for people to just work longer?

TG: Working into your mid-sixties and beyond is not going to save many people from poverty and downward mobility. The unfriendly labor market for older workers with low incomes and nonprofessional degrees tells a different story.

My research lab’s reportdocuments the growth in older workers’ unstable and low-wage jobs from 2005 to 2015. By 2015, nearly 25% of older workers were in bad jobs—defined as those that require on-call work and low-wage traditional jobs that pay less than $15,000 per year. The share of workers ages 62 and over in bad jobs grew from 14% in 2005 to 24% in 2015.

LP: The American workplace is changing, with union membership in the private sector in the single digits, earnings of workers lagging behind gains in labor productivity and temporary, contract, and on-call work on the rise. Meanwhile, fewer workers get health or pension benefits through their jobs. How are we supposed to save for retirement in these circumstances? What ideas are out there?

TG: Richard Thaler just won a Nobel Prize for his work in behavioral economics, which has been very influential in shaping thinking on pension policy.

He advises that the government engage in “libertarian paternalism.” Instead of mandating pension coverage, Thaler proposes voluntary design changes to the current U.S. “do-it-yourself” system, which is spotty because it is voluntary on the part of employers and employees and requires individuals to direct their own commercial accounts.

But his “design” suggestions are more of the same. He proposes to have employers automatically enroll workers in a retirement plan the employer may (or may not) sponsor. Remember, less than half of employees have a retirement plan offered at work. Workers could opt out and many of the people who need coverage the most opt out for economic reasons, for instance women,and never get an employer contribution.

The second major design change he wants is voluntary “auto-esclation.” The idea here is that employers would automatically contribute all or a portion of their workers’ salary increases in their account. Unfortunately, auto-enroll and auto escalate only works for employees with stable jobs, no breaks in service, continual raises, and high incomes. According to many studies, one from the Urban Institute and a recent one of mine with graduate student Ismael Cid-Martinez, these voluntary features ensure that the tax breaks for retirement plans disproportionately go to the top 20% of workers.

The current voluntary, individual-directed, commercial system design leaves low and middle-income workers behind. Why? Because employers don’t want the expense and hassle of providing a retirement account to workers and may be afraid to offer one if their competitors don’t—a classic collective action problem. Unfortunately, unions are too weak to help employers coordinate and universally provide pensions.

LP: So despite his Nobel Prize, you think that Thaler has got it wrong. How would you help people save?

TG: I propose a retirement plan for all plan — a federal plan that mandates a prefunded layer on top of Social Security. A universal public option for retirement saving. The plan would be portable, accountable, low-fee, pooled and ensure a steady return. A mandated pooled plan is the best way to provide social insurance because no worker can go it alone or insure against employment, financial, investment and longevity risk by themselves.

If the GRA plan were implemented today, we could prevent over 8 million elders from falling into poverty. But GRA wouldn’t be enough; we need a stronger Social Security system.

LP: Important that you also mention the need to expand Social Security. Can you explain how it would be possible? What do you say to people who argue that “we can’t afford that” or that Social Security is “running out of money”?

Social Security is fully funded until 2034. The Social Security Board of Trustees estimates that we will only be able to pay three-fourths of current benefits promised after that date if there are no adjustments. That is not insolvency or going broke. It is a potential shortfall, which depends heavily on wage growth and inequality, productivity, fertility, and immigration.

Social Security is designed to be updated periodically, so as time goes on it is always “running out of money” unless it is updated. The FICA tax has been increased 21 times in its 83-year-old history, typically every 2 years. But we have not increased the FICA tax in over 28 years! It’s time for a raise. Right now, the tax rate is 12.4%, split between employer and the employees. If we raise the FICA tax now to about 15%, the system could pay promised benefits for about 75 years. If we raise the earnings cap (now only $128,700) for Old Age and Disability insurance (Medicare tax is on all earnings) then we have revenue to raise the special minimum benefit for the poorest elders and prevent abject elder poverty.

The Social Security administration has identified the impact of several major proposals to expand and strengthen Social Security—most involve revenue raises.

The reality is that we need both an enhanced Social Security system and an advanced funded layer. No country has provided a stable pension system just on a pay-as-you-go system. The Spanish, Greek, and Italian systems tried but they have moved away from a pay-as-you-go system as their aging populations cause the tax rates to rise to unsustainable political levels.

LP: What are the biggest obstacles to addressing the looming crisis and what are your thoughts on how to overcome them?

TG: Relying on personal thrift to ensure against the financial insecurity of old age has not worked. But the biggest obstacles to mandating a retirement account for all and improving Social Security are members of the industry that thrive on voluntary do-it-yourself retirement accounts.

The 401(k) and IRA industry will be challenged by the existence of low cost and high return stable GRAs that offer low-cost lifetime annuities. The industry has fought the efforts at the state level to provide public retirement plan options.

I hope that America is not locked into an extreme, voluntary, market-based retirement income security system.

The most important obstacle to change is political. Workers and, by extension, older workers, need to act collectively and militantly to spur policymakers into action. Only large scale collective action with voting and organizing can get our representatives to build a system that ensures that the retired can live financial comfortable and stable lives.

Silver Member

Several states have unfunded liabilities that can only be fixed with major reforms. Unfortunately, politicians find it easier to ignore the problem.

Unfunded public-pension liabilities are not a fun subject, and most politicians do all they can to avoid it. Nobody wants to be the sober one in a room full of drunks — but the party can’t go on forever, and eventually someone will have to clean up the mess.

According to a comprehensive survey by the American Legislative Exchange Council (ALEC) of 280 state-administered public-pension plans, the unfunded liabilities of state-administered pensions now exceed $6 trillion. The number increased by $433 billion in the last twelve months. An April report from Pew Charitable Trusts shows that state-pension debt has increased for 15 consecutive years. While this growing gap is a major concern for current public-sector employees and retirees, it should also worry the rest of us.

As the costs of providing current pension benefits begin to weigh on city and state budgets, other public services are getting crowded out. This is putting pressure on many pension-plan managers to seek greater returns by buying riskier assets. Decades of underfunding adds to the pressure, as governments scramble to meet unrealistic return targets and pay out promised benefits at a level the private sector moved away from decades ago. This all points to the growing possibility that many states will need to raise taxes to keep the party going. But without major pension reform, we may soon see the day when taxpayers in fiscally responsible states are asked to bail out those states that just couldn’t, or wouldn’t, stop partying.

A few examples of what some of the party favors look like will help explain why the clean-up phase will be so infuriating. The retired head of the Oregon Health & Science University takes home a pension of $76,111 — each month! Fifty-eight percent of police and firefighters in Scranton, Pa., are on disability pensions; the average retirement age of a Scranton police officer is just under 45 years old. In Nevada, the average full-career state worker will receive more than $1.3 million in lifetime pension benefits. In five states (California, West Virginia, Oregon, Texas, and New Mexico), a retiree can receive an annual pension income that exceeds his last yearly salary.

In Mississippi, the state where I live and work, the unfunded pension picture is not a pretty one. We have total unfunded liabilities of over $80 billion. On a per capita basis, that means each Mississippian is responsible for roughly $27,000 of the debt. We only have 24 percent of these promises currently funded. But this issue affects states of all sizes and politics, and from all regions.

The states with the largest per capita debt are somewhat surprising: Alaska, Connecticut, Ohio, Illinois, and New Mexico. So are the states with the smallest per capita share of debt: Tennessee, Indiana, Nebraska, Wisconsin, and North Carolina.

However, perhaps the most important measure for a state’s pension health is its funding ratio. This is the percentage of the total pension obligations that is currently funded. The states that are the least funded to meet obligations include Connecticut (20 percent), Kentucky (21 percent), Illinois (23 percent), Mississippi (24 percent), and New Jersey (26 percent). In other words, Connecticut has saved $1 for every $5 of known debt obligation it has for current and future state system retirees. The states in the best shape:

Wisconsin (62 percent funded),​

South Dakota (48 percent),​

New York (46 percent),​

Tennessee (46 percent), and​

North Carolina (45 percent).​

What do the data tell us? For starters, note the strong correlation between states that have managed their pension programs responsibly and states with pro-growth economic policies that favor free-market solutions over government ones. Note that each of the five states with the highest funding levels are also states that rely less on the government to sustain their economies. In none of these states does government control more than 45 percent of the economy, which puts these states in the top half of that measure.

On the other end of the spectrum, 57 percent of Kentucky’s economy is controlled by government, while the public sector controls 55 percent of Mississippi’s economy. Obviously, states such as New Jersey and Illinois suffer from powerful public-employee unions that resist any attempts to adjust spending, renegotiate bad contracts, or move new employees to 401(k)-type retirement accounts that require self-financing of retirement programs (as with the tens of millions of workers in the private sector). But even in states without public-sector unions, such as Mississippi, lawmakers have been hesitant to make necessary changes.

The party is over. This is an easy math problem that, unlike the financial crisis from ten years ago, everyone can see coming. Let’s turn the lights on in state capitols and city halls everywhere and get the cleanup started.

Because none of them are interested in doing anything to fix problems that aren't coming home to roost during their term. That's for some future Congress or State Legislature to fix.
...and to keep getting re-elected, they need to be able to show voters what they've done for them lately. Not that they've spent money fixing things that most people were never aware was going to be problem 10 years from now.

Its blown up already, some courts have ruled you cant change the unions and .gov pensions, some ruled you can, in the end we are going to have to admit the sytsem has collapsed, not if but when , countries are already getting out of the dollar business and using their own currencies

Killed then Resurrected

FedGov pensions are not like local gov pensions. Military and Civilian pensions aren't what you think they are, at least most people.
Amazing how low they are if you are a lower GS level employee like most people. Nothing like Cali or Illinois.
You can look them up, they aren't what you think. Same with the medical care. Not what you think.
At least for the serfs and peasants.

Site Supporter

FedGov pensions are not like local gov pensions. Military and Civilian pensions aren't what you think they are, at least most people.
Amazing how low they are if you are a lower GS level employee like most people. Nothing like Cali or Illinois.
You can look them up, they aren't what you think. Same with the medical care. Not what you think.
At least for the serfs and peasants.

Mother Lode Found

We’ve been writing for some time that one of the consequences of the protracted super-low interest rate regime of the post crisis era was to create a world of hurt for savers, particularly long-term savers like pension funds, life insurers and retirees. Even though the widespread underfunding at public pension plans is in many cases due to government officials choosing to underfund them (New Jersey in the early 1990s is the poster child), in many cases, the bigger perp is the losses they took during the crisis, followed by QE lowering long-term interest rates so much that it deprived investor of low-risk income-producing investments. Pension funds and other long-term investors had only poor choices after the crisis: take a lot of risk and not be adequately rewarded for it (as we have shown to be the case with private equity).

And as we’ve also pointed out, if you think public pension plans are having a rough time, imagine what it is like for ordinary people (actually, most of you don’t have to imagine). It is very hard to put money aside, given rising medical and housing costs. Unemployment means dipping into savings. And that’s before you get to emergencies: medical, a child who gets in legal trouble, a car becoming a lemon prematurely. And even if you are able to be a disciplined saver, you also need to stick to an asset allocation formula. For those who deeply distrust stocks, it’s hard to put 60% in an equity index fund (one wealthy person I know pays a financial planner 50 basis points a year just to put his money into Vanguard funds because he can’t stand to pull the trigger).

The Financial Times turns to this topic today with a solid piece, Legacy of Lehman Brothers is a global pensions mess, that includes useful data. As many others have, we’ve pointed out that one of the effects of the post-crisis regime was to move risks out of the banking system and into the hands of savers. As the pink paper describes it:

Pension funds have taken on many of the risks that were once held by banks. Low bond yields, which make it more expensive to guarantee an income, have forced them to take extra risks. They now hold assets, such as hedge fund and private equity investments, with much concealed leverage. And many companies have transferred the risk of bad investment performance from their shareholders to savers – and savers are not usually well-equipped to deal with them.​

​

The result: the risk of a sudden banking collapse, which almost happened 10 years ago, has reduced. But the risk of social crisis, as people enter retirement without enough money, is rising.​

​

And betting wrong can make a big difference:

All the central bank activity spurred widely varying returns on assets around the world. US stock markets enjoyed arguably their longest bull market on record. Real assets, such as real estate (which benefits from low interest rates), have also fared well.​

​

But markets outside the US fared far worse, burdened by worries about China, and by the sovereign debt crisis in Europe, which was followed by a severe economic slowdown. While the S&P 500 gained 175 per cent after Lehman fell, stocks in the rest of the world gained only 55 per cent, equivalent to a nominal annual return of barely 4 per cent.​

Recall that we’ve pointed out how CalPERS’ returns have lagged those of other large public pension funds, and in particular, those of CalSTRS. One of the big reasons is that its peers have a much lower allocation to foreign stocks. I would assume their aim is to be in more asset classes to reduce risk, while as CalPERS’ consultant Wilshire recounted yesterday, CalPERS objective is to participate in global growth. That hasn’t been working out all that well.

Back to the Financial Times:

The key insight is this: the biggest factor determining a return on your asset in the future is the price you pay for it now. If it is expensive when you buy it, your likely return is lower than if you buy it cheap.​

Again from the pink paper:

Abandoning DB [defined benefit] plans reduces the risk that companies will face bills that they cannot pay. But it opens the greater risk that individual savers, far less sophisticated than the actuaries who run company pension plans, will fail to save enough for retirement – particularly as many suffer stagnating wages and have difficulty meeting their current commitments.​

The evidence from the US is alarming…. Most Americans with DC [defined contribution] plans do not have anything like enough money saved to support them in retirement….​

If you want a decent chance of an income of two-thirds of your final salary for the rest of your life, you will need a retirement fund worth more than 10 times that final salary. Only a tiny proportion of Americans are on course for achieving this.​

The article drily notes that countries that are introducing defined contribution plans should not expect them to fare better than they have in the US. I wonder how Australia’s superannuation scheme, which had just been put in place when I was there, is doing. It initially required workers to put 9% of their pay in a superannuation fund, and I believe is now 9.5% Employees get tax breaks if they make additional voluntary contributions. “Super” gave me the willies because it looked like there were way too many paid advisors and fund fees in the system.

This picture makes clear why so many Americans are interested in moving to lower-cost countries when they retire, particularly given the horrible costs of American healthcare. And don’t think Medicare is a magic bullet. A friend was hit with a $25,000 bill for her stay in a rehab facility after a bad leg break. But the flip side is a quite a few people uproot themselves, only to wind up coming back to the US because they find themselves unable to adapt to a new country. So there are no easy answers, individually and collectively.

Gold Member

We’ve been writing for some time that one of the consequences of the protracted super-low interest rate regime of the post crisis era was to create a world of hurt for savers, particularly long-term savers like pension funds, life insurers and retirees. Even though the widespread underfunding at public pension plans is in many cases due to government officials choosing to underfund them (New Jersey in the early 1990s is the poster child), in many cases, the bigger perp is the losses they took during the crisis, followed by QE lowering long-term interest rates so much that it deprived investor of low-risk income-producing investments. Pension funds and other long-term investors had only poor choices after the crisis: take a lot of risk and not be adequately rewarded for it (as we have shown to be the case with private equity).

And as we’ve also pointed out, if you think public pension plans are having a rough time, imagine what it is like for ordinary people (actually, most of you don’t have to imagine). It is very hard to put money aside, given rising medical and housing costs. Unemployment means dipping into savings. And that’s before you get to emergencies: medical, a child who gets in legal trouble, a car becoming a lemon prematurely. And even if you are able to be a disciplined saver, you also need to stick to an asset allocation formula. For those who deeply distrust stocks, it’s hard to put 60% in an equity index fund (one wealthy person I know pays a financial planner 50 basis points a year just to put his money into Vanguard funds because he can’t stand to pull the trigger).

The Financial Times turns to this topic today with a solid piece, Legacy of Lehman Brothers is a global pensions mess, that includes useful data. As many others have, we’ve pointed out that one of the effects of the post-crisis regime was to move risks out of the banking system and into the hands of savers. As the pink paper describes it:

Pension funds have taken on many of the risks that were once held by banks. Low bond yields, which make it more expensive to guarantee an income, have forced them to take extra risks. They now hold assets, such as hedge fund and private equity investments, with much concealed leverage. And many companies have transferred the risk of bad investment performance from their shareholders to savers – and savers are not usually well-equipped to deal with them.​

​

The result: the risk of a sudden banking collapse, which almost happened 10 years ago, has reduced. But the risk of social crisis, as people enter retirement without enough money, is rising.​

​

And betting wrong can make a big difference:

All the central bank activity spurred widely varying returns on assets around the world. US stock markets enjoyed arguably their longest bull market on record. Real assets, such as real estate (which benefits from low interest rates), have also fared well.​

​

But markets outside the US fared far worse, burdened by worries about China, and by the sovereign debt crisis in Europe, which was followed by a severe economic slowdown. While the S&P 500 gained 175 per cent after Lehman fell, stocks in the rest of the world gained only 55 per cent, equivalent to a nominal annual return of barely 4 per cent.​

Recall that we’ve pointed out how CalPERS’ returns have lagged those of other large public pension funds, and in particular, those of CalSTRS. One of the big reasons is that its peers have a much lower allocation to foreign stocks. I would assume their aim is to be in more asset classes to reduce risk, while as CalPERS’ consultant Wilshire recounted yesterday, CalPERS objective is to participate in global growth. That hasn’t been working out all that well.

Back to the Financial Times:

The key insight is this: the biggest factor determining a return on your asset in the future is the price you pay for it now. If it is expensive when you buy it, your likely return is lower than if you buy it cheap.​

Again from the pink paper:

Abandoning DB [defined benefit] plans reduces the risk that companies will face bills that they cannot pay. But it opens the greater risk that individual savers, far less sophisticated than the actuaries who run company pension plans, will fail to save enough for retirement – particularly as many suffer stagnating wages and have difficulty meeting their current commitments.​

The evidence from the US is alarming…. Most Americans with DC [defined contribution] plans do not have anything like enough money saved to support them in retirement….​

If you want a decent chance of an income of two-thirds of your final salary for the rest of your life, you will need a retirement fund worth more than 10 times that final salary. Only a tiny proportion of Americans are on course for achieving this.​

The article drily notes that countries that are introducing defined contribution plans should not expect them to fare better than they have in the US. I wonder how Australia’s superannuation scheme, which had just been put in place when I was there, is doing. It initially required workers to put 9% of their pay in a superannuation fund, and I believe is now 9.5% Employees get tax breaks if they make additional voluntary contributions. “Super” gave me the willies because it looked like there were way too many paid advisors and fund fees in the system.

This picture makes clear why so many Americans are interested in moving to lower-cost countries when they retire, particularly given the horrible costs of American healthcare. And don’t think Medicare is a magic bullet. A friend was hit with a $25,000 bill for her stay in a rehab facility after a bad leg break. But the flip side is a quite a few people uproot themselves, only to wind up coming back to the US because they find themselves unable to adapt to a new country. So there are no easy answers, individually and collectively.

Silver Member

by Charles Hugh-SmithWe’re living in a fantasy, folks. Bubbles pop, period.The nice thing about the “wealth” generated by bubbles is it’s so easy: no need to earn wealth the hard way, by scrimping and saving capital and investing it wisely. Just sit back and let central bank stimulus push assets higher.The problem with bubble “wealth” is it’s like an addictive narcotic: now our entire pension system, public and private, is dependent on the current bubbles in stocks, real estate, junk bonds and other risk assets never popping.

But a funny thing eventually happens to financial bubbles: they all pop. And when the current bubbles pop, they will gut pension reserves, projections and promises.Take a look at the chart below of taxpayer contributions to Calpers, the California public pension fund. Note that in the heady days of Bubble #1, the dot-com era, enormous gains in Calpers’ stock holdings meant taxpayers’ contributions were a modest $159 million annually.Based on bubbles never popping and monumental annual gains continuing forever, Calpers projected taxpayer contributions in 2010 of $6.6 billion. But since Bubble #2 had popped in 2008-09, stock market gains had cratered and as a consequence taxpayers had to pay almost four times the Calpers projection: $24.6 billion.In a few short years, taxpayer contributions have nearly doubled, despite the outsized returns generated by Bubble #3, the largest of them all. By 2015, taxpayer contributions to Calpers totaled $45 billion, even as Calpers reaped huge gains in its stock portfolio.So what happens to taxpayer contributions when all the asset bubbles pop?They go through the roof right when taxpayers are themselves facing staggering declines in their own personal wealth and the inevitable declines in income that accompany recessions. (What’s a recession? I thought the Fed banned those.)

Here’s a chart of the three stock market bubbles. Note the current bubble is the most extreme bubble.

Stock bubbles inflate on the euphoric belief that corporate profits will soar ever higher, forever and ever. But history suggests corporate profits tend to crash in global recessions and financial crises.

Meanwhile, household net worth and asset valuations have disconnected from the real world. GDP has risen modestly while assets have skyrocketed.

Private retirement assets (401Ks and IRAs) have bubbled higher, creating the temporary illusion of a “safe, secure” retirement because hey, past bubbles popped but the current bubble will never pop because the Fed won’t let it pop.

We’re living in a fantasy, folks. Bubbles pop, period. The Dow and SPX rose week after week and month after month in the 1999-2000 bubble, and again in the 2007 bubble, and so did junk bonds and housing. Everything rose in lockstep, lending support to the magical-thinking belief that this bubble will never pop because (insert excuse of the moment): housing never drops, the Fed has our back, etc.

Bubbles pop. To avoid this reality, commentators claim this is not a bubble. Since it’s not a bubble, it won’t pop. But calling a bubble not-a-bubble doesn’t mean it’s not a bubble. Wordplay doesn’t change reality.

Gold Member

by Charles Hugh-SmithWe’re living in a fantasy, folks. Bubbles pop, period.The nice thing about the “wealth” generated by bubbles is it’s so easy: no need to earn wealth the hard way, by scrimping and saving capital and investing it wisely. Just sit back and let central bank stimulus push assets higher.The problem with bubble “wealth” is it’s like an addictive narcotic: now our entire pension system, public and private, is dependent on the current bubbles in stocks, real estate, junk bonds and other risk assets never popping.

But a funny thing eventually happens to financial bubbles: they all pop. And when the current bubbles pop, they will gut pension reserves, projections and promises.Take a look at the chart below of taxpayer contributions to Calpers, the California public pension fund. Note that in the heady days of Bubble #1, the dot-com era, enormous gains in Calpers’ stock holdings meant taxpayers’ contributions were a modest $159 million annually.Based on bubbles never popping and monumental annual gains continuing forever, Calpers projected taxpayer contributions in 2010 of $6.6 billion. But since Bubble #2 had popped in 2008-09, stock market gains had cratered and as a consequence taxpayers had to pay almost four times the Calpers projection: $24.6 billion.In a few short years, taxpayer contributions have nearly doubled, despite the outsized returns generated by Bubble #3, the largest of them all. By 2015, taxpayer contributions to Calpers totaled $45 billion, even as Calpers reaped huge gains in its stock portfolio.So what happens to taxpayer contributions when all the asset bubbles pop?They go through the roof right when taxpayers are themselves facing staggering declines in their own personal wealth and the inevitable declines in income that accompany recessions. (What’s a recession? I thought the Fed banned those.)

Here’s a chart of the three stock market bubbles. Note the current bubble is the most extreme bubble.

Stock bubbles inflate on the euphoric belief that corporate profits will soar ever higher, forever and ever. But history suggests corporate profits tend to crash in global recessions and financial crises.

Meanwhile, household net worth and asset valuations have disconnected from the real world. GDP has risen modestly while assets have skyrocketed.

Private retirement assets (401Ks and IRAs) have bubbled higher, creating the temporary illusion of a “safe, secure” retirement because hey, past bubbles popped but the current bubble will never pop because the Fed won’t let it pop.

We’re living in a fantasy, folks. Bubbles pop, period. The Dow and SPX rose week after week and month after month in the 1999-2000 bubble, and again in the 2007 bubble, and so did junk bonds and housing. Everything rose in lockstep, lending support to the magical-thinking belief that this bubble will never pop because (insert excuse of the moment): housing never drops, the Fed has our back, etc.

Bubbles pop. To avoid this reality, commentators claim this is not a bubble. Since it’s not a bubble, it won’t pop. But calling a bubble not-a-bubble doesn’t mean it’s not a bubble. Wordplay doesn’t change reality.

Last week, the head of a New York state pension fund found herself a new job.

Vicki Fuller, the former head of New York’s $209 billion fund, now earns $275,000 per year working part time for a natural gas group called The Williams Companies - good work if you can get it.

It’s noteworthy that when Ms. Fuller ran her state pension fund, she invested $110 million of taxpayer money to buy bonds issued by none other than The Williams Companies.

Bear in mind that Moody’s, the credit rating agency, downgraded Williams’ financial outlook to “negative” because of the company’s high leverage and risk.

The fund that Ms. Fuller managed also voted in favor of huge, multi-million dollar pay packages for senior executives of The Williams Companies even though the stock price was dropping.

So… gee… maybe it’s just a crazy coincidence that Ms. Fuller left her job at the state pension fund and took an extremely lucrative part-time job THE SAME WEEK with The Williams Companies.

This is so blatant… it’s banana republic stuff. It’s not as bad as the billion+ dollar theft from Malaysia’s pension fund, but it’s the same stink.

Bear in mind that most pension funds are already in terrible condition to begin with, even before you factor in potential malfeasance by the bureaucrats who manage them.

Overall, public pension funds in the US are short $7 TRILLION on what they have promised to pay out to retirees.

If you include Social Security that amount balloons beyond $50 trillion.

And that’s just the US.

The World Economic Forum said the total global pension shortfall was $70 TRILLION in 2015. They expect it to reach $400 trillion by 2050.

Pension funds across nearly every major economy on the planet are seriously in the red… it’s merely a question of how severe the problem is, and how much longer they can kick the can down the road.

Japan, for example, borrows billions each year to prop up its pension fund, going deeper and deeper into debt.

Some countries have started to make major pension reforms– Russia is one notable example. Vladimir Putin recently raised the retirement age, a move which proved HIGHLY unpopular.

And that’s precisely the point: pension benefits are loooooong term promises that people have spent decades dreaming about.

And for a lot of people, it really is their only hope.

They work terrible jobs that they hate for bosses they despise earning pitiful salaries for decades, all for the dream that one day they’ll be able to retire on the pension that the government promised them.

When politicians make any adverse changes to that promise, people become unglued.

And yet, the arithmetic is completely obvious: a lot of major pension funds pay out more in benefits than they generate in tax revenue and investment income.

That’s simply not sustainable. Eventually the fund will run out of money.

In the United States, the Social Security Administration has gone so far as to indicate the YEAR in which its gigantic trust funds will run out of money.

They’re practically giving you a date to circle on your calendar– and it’s only about 15 years away.

And of course, it doesn’t help when government bureaucrats who control public pension funds receive tremendous personal benefit for steering taxpayer money towards bad investments.

The system is obviously flawed. But there are solutions.

While you might not be able to rely on your pension or Social Security in the future, there’s nothing stopping you from setting aside money for your own retirement.

And there’s absolutely ZERO downside to doing this– no one is going to be worse off for having extra money for retirement.

Many countries have favorable legislation to help you save in a tax-advantaged way.

(In some cases, like Malta, that structure can even be used internationally by foreign citizens… but more on that another time.)

The US has a multitude of options available, including IRAs and 401(k)s.

Both of those can be established under a ‘self-directed’ or ‘solo’ structure whereby you can set aside over $50,000 per year for your retirement… AND exercise substantial influence over how your retirement savings is invested.

Right now most IRAs and 401(k)’s in the Land of the Free are managed by large financial institutions… and those institutions invest your retirement savings in whatever option benefits them the most.

A self-directed structure puts those investment decisions back in your hands.

Plus, you have a LOT more investment options, ranging from private equity to cryptocurrency to foreign real estate.

Best of all, it can be a lot cheaper.

With a self-managed structure, you typically have fixed costs that might run a few hundred dollars per year, whereas managed retirement accounts charge a percentage.

The higher your retirement account balance grows, the more of your investment return the bank puts in its pockets.

That's because magic or anything, but just a case of simple arithmetic.
They know how many people pay in. They know how much is paid out. They know when the Bonds are due. They know how many new recipients there are each year as well as how many die and quit collecting.
....and all those numbers are published.

If one has a big enough calculator, it seems to me that most anyone could figure it all up and come pretty close to figuring the year it goes bust.
....but that's also assuming that the economy keeps chuggin' along right up until that point. It probably won't.

Problem is, even to save your own money you still have to spend it in order to do so. Or give it to someone else to spend.
...and if either you or they end up having spent it on the wrong thing, you end up with about the same results as having buried cash in a box for 40 years.

Silver Member

A Sears bankruptcy could cause one of the biggest pension defaults ever, but the government would protect 90,000 retirees
If Sears, once the nation's largest retailer, declares bankruptcy, it could cause one of the biggest pension defaults in U.S. history, but the government would step in to keep checks coming to more than 90,000 retirees. (Jose M. Osorio/Chicago Tribune)Robert ChannickContact ReporterChicago Tribune

If Sears, once the nation’s largest retailer, declares bankruptcy, it could cause one of the biggest pension defaults in U.S. history, but the government would step in to keep checks coming to more than 90,000 retirees.
The company’s long-term pension obligations, which have been underfunded by more than $1 billion for years, would be covered by the federal Pension Benefit Guaranty Corp., which has footed the bill for nearly 5,000 failed employer pension plans since its founding in 1974.
“PBGC is monitoring developments at Sears and will continue to protect its two pension plans, which cover over 90,000 people,” the agency said in a statement Thursday. “PBGC’s guarantee is critical to the retirement security of workers and retirees in pension plans.”
A spokesman for Sears Holdings Corp. did not respond Thursday to a request for comment.

The struggling Hoffman Estates-based retailer is facing a $134 million debt repayment Monday, which reportedly could lead Sears to seek bankruptcy protection in the next few days. Under a Chapter 7 liquidation, the company’s pension obligations would shift to the government, while under a Chapter 11 reorganization, Sears could maintain one or both of its pension plans.
Drew Dawson, a law professor at the University of Miami, called the potential Sears pension default “pretty staggering” in its scope, based on historic comparisons.
“The human impact of this is really big on the individual retirees,” Dawson said. “But this would be a big impact on the PBGC itself, financially.”
In a blog post last month, CEO Edward Lampert wrote that Sears has contributed more than $4.5 billion to its pension plans since 2005, an obligation that “significantly impacted” the company, which hasn’t turned an annual profit since 2010.
“Had the company been able to employ those billions of dollars in its operations, we would have been in a better position to compete with other large retail companies, many of which don’t have large pension plans,” Lampert wrote.

Sears entered into a five-year pension protection plan with the Pension Benefit Guaranty Corp. in 2016, agreeing to set aside certain assets for pension funding. In November, Sears amended the agreement to sell up to 138 properties to finance a $407 million contribution to its pension plans.
Last year, the agency paid $5.7 billion to nearly 840,000 retirees from 4,845 failed single-employer plans, according to its annual report. Taking over the Sears pension plans would be one of the largest defaults in its 44-year history.
Chicago-based United Airlines had the largest pension default when it terminated its four retirement plans while operating under bankruptcy protection in 2005. That shifted $7.3 billion in claims for more than 122,000 participants over to the agency.
For Sears retirees, a pension default by the company is not a major issue, as long as the checks keep coming.
“Pensions are not our concern because pensions will be secured for our retirees,” said Ron Olbrysh, 77, chairman of the Chicago-based National Association of Retired Sears Employees, which represents thousands of former employees across the country.
Olbrysh, the company’s former assistant general counsel who retired in 1996, said the Sears pensioners were primarily hourly employees who would be fully covered under the set limits of the agency. He, along with many higher-income salaried employees, took a lump sum pension payment when they retired.
A bigger concern for many Sears retirees is the potential loss of a life insurance plan that the company has continued to fund but which the agency would not cover.
“The retirees can still maintain that insurance if they want to pay for it themselves, but the average age of most our retirees is about 80 and the cost of that would be just ridiculous,” Olbrysh said
Olbrysh, who lives in suburban Lombard, started at Sears as a trademark attorney in 1972, and worked his way up the corporate ladder as the once powerful retailer began to lose its hold on consumers, failing to meet challenges from bricks-and-mortar competitors such as Walmart and, later, Amazon and other online giants.
He called its potential bankruptcy a shame, but perhaps a sign of the times.
In its heyday, Sears offered employees attractive benefits including a “phenomenal” profit-sharing plan, and of course, the pension plan, Olbrysh said.
“Sears was a good company for me,” he said. “I was lucky I got out when I did.”rchannick@chicagotribune.com

A Sears bankruptcy could cause one of the biggest pension defaults ever, but the government would protect 90,000 retirees
If Sears, once the nation's largest retailer, declares bankruptcy, it could cause one of the biggest pension defaults in U.S. history, but the government would step in to keep checks coming to more than 90,000 retirees. (Jose M. Osorio/Chicago Tribune)Robert ChannickContact ReporterChicago Tribune

If Sears, once the nation’s largest retailer, declares bankruptcy, it could cause one of the biggest pension defaults in U.S. history, but the government would step in to keep checks coming to more than 90,000 retirees.
The company’s long-term pension obligations, which have been underfunded by more than $1 billion for years, would be covered by the federal Pension Benefit Guaranty Corp., which has footed the bill for nearly 5,000 failed employer pension plans since its founding in 1974.
“PBGC is monitoring developments at Sears and will continue to protect its two pension plans, which cover over 90,000 people,” the agency said in a statement Thursday. “PBGC’s guarantee is critical to the retirement security of workers and retirees in pension plans.”
A spokesman for Sears Holdings Corp. did not respond Thursday to a request for comment.

The struggling Hoffman Estates-based retailer is facing a $134 million debt repayment Monday, which reportedly could lead Sears to seek bankruptcy protection in the next few days. Under a Chapter 7 liquidation, the company’s pension obligations would shift to the government, while under a Chapter 11 reorganization, Sears could maintain one or both of its pension plans.
Drew Dawson, a law professor at the University of Miami, called the potential Sears pension default “pretty staggering” in its scope, based on historic comparisons.
“The human impact of this is really big on the individual retirees,” Dawson said. “But this would be a big impact on the PBGC itself, financially.”
In a blog post last month, CEO Edward Lampert wrote that Sears has contributed more than $4.5 billion to its pension plans since 2005, an obligation that “significantly impacted” the company, which hasn’t turned an annual profit since 2010.
“Had the company been able to employ those billions of dollars in its operations, we would have been in a better position to compete with other large retail companies, many of which don’t have large pension plans,” Lampert wrote.

Sears entered into a five-year pension protection plan with the Pension Benefit Guaranty Corp. in 2016, agreeing to set aside certain assets for pension funding. In November, Sears amended the agreement to sell up to 138 properties to finance a $407 million contribution to its pension plans.
Last year, the agency paid $5.7 billion to nearly 840,000 retirees from 4,845 failed single-employer plans, according to its annual report. Taking over the Sears pension plans would be one of the largest defaults in its 44-year history.
Chicago-based United Airlines had the largest pension default when it terminated its four retirement plans while operating under bankruptcy protection in 2005. That shifted $7.3 billion in claims for more than 122,000 participants over to the agency.
For Sears retirees, a pension default by the company is not a major issue, as long as the checks keep coming.
“Pensions are not our concern because pensions will be secured for our retirees,” said Ron Olbrysh, 77, chairman of the Chicago-based National Association of Retired Sears Employees, which represents thousands of former employees across the country.
Olbrysh, the company’s former assistant general counsel who retired in 1996, said the Sears pensioners were primarily hourly employees who would be fully covered under the set limits of the agency. He, along with many higher-income salaried employees, took a lump sum pension payment when they retired.
A bigger concern for many Sears retirees is the potential loss of a life insurance plan that the company has continued to fund but which the agency would not cover.
“The retirees can still maintain that insurance if they want to pay for it themselves, but the average age of most our retirees is about 80 and the cost of that would be just ridiculous,” Olbrysh said
Olbrysh, who lives in suburban Lombard, started at Sears as a trademark attorney in 1972, and worked his way up the corporate ladder as the once powerful retailer began to lose its hold on consumers, failing to meet challenges from bricks-and-mortar competitors such as Walmart and, later, Amazon and other online giants.
He called its potential bankruptcy a shame, but perhaps a sign of the times.
In its heyday, Sears offered employees attractive benefits including a “phenomenal” profit-sharing plan, and of course, the pension plan, Olbrysh said.
“Sears was a good company for me,” he said. “I was lucky I got out when I did.”rchannick@chicagotribune.com

Silver Member

Bloomington City Council approved an ordinance that creates a mandatory business registry with a $50 entrance fee, in addition to hiking 100 permit and licensing fees.

Bloomington City Council voted Oct. 8 to approve an ordinance creating a mandatory business registry, according to the Pantagraph. In addition, the ordinance will increase 100 fees on licenses, inspections, permits and other occupational requirements.

The new registry will require businesses to pay a one-time $50 fee upon entry, and impose a $75 fine on businesses that fail to submit yearly registration renewals on time. Home-based businesses and certain charitable organizations are exempt from the entrance fee but are still subject to the $75 penalty.

The registry will include information such as the type of products sold at each business, the materials used in those products and contact information. According to the Pantagraph, the city will store this information for police and firefighters to access during emergencies. The city also aims to use the information to identify new businesses subject to local taxes, such as the food-and-beverage tax, or notify businesses regarding construction projects and road closures.

Beyond safety and tax-compliance precautions, however, the city also aims to use new revenues from the fee increases to help shore up Bloomington’s struggling finances. Bloomington’s current operating budget, approved in April, included a $2.9 million deficit. A portion of the estimated $400,000 in revenue generated under the ordinance will go toward narrowing that shortfall, according to the Pantagraph.

One cause of Bloomington’s budget woes is the growth in pension costs for local public safety retirees. An Illinois Department of Insurance report shows the city’s contributions to its police and fire pension funds have spiked substantially between 2015 and 2016, the most recent years for which data is available. The city’s – or taxpayers’ – contribution to fire pensions rose by nearly 12 percent during that time, while police pension contributions increased by nearly 24 percent.

All told, Bloomington taxpayers contributed a combined $9.1 million to the city’s police and fire pension funds in 2016 – $1.4 million more than in 2015.

But this is hardly a new development. With few exceptions, Bloomington taxpayers’ contributions to the city’s public safety pensions have seen near-annual increases since at least 2005. Taxpayers’ fire pension contributions have grown by 188 percentsince 2005, during which contributions to police pensions spiked by 190 percent.

Across Illinois, growing pension costs are weighing on local budgets, leading communities such as Bloomington to raise taxes and fees in an effort to stabilize their strained finances.

But overburdening businesses to fill budget holes is not a sustainable solution, especially given Illinois’ already-poor business environment. Moreover, tax and fee increases are driving Illinoisans across state lines. Residents cite Illinois’ high taxes as the No. 1 reason they consider moving out of state.

The negative credit outlook for Illinois' capital city is an example of how growing local unfunded pension liabilities are affecting municipalities across the state.
Credit rating agency S&P affirmed Springfield's AA bond rating this week, but changed its outlook from stable to negative, citing the city's unfunded pension liabilities.
“The city has also raised several of its taxes outside of its property tax levy, and may be facing a political impasse in its ability to substantially raise operating revenue in the future,” S&P Global Ratings credit analyst John Kenward said. “If management is unable to bring operating costs in line with revenues and restore budgetary stability, we believe that credit quality will deteriorate.”

Springfield Police Pension Board Vice President Bob Davidsmeyer told the city council this week that it isn't paying the unfunded liability interest, equating that to scrimping a few hundred dollars each mortgage payment.
“If I continue to do that over 30 years and I walk in to see what I have to pay, it’s going to be more than what I actually paid for my house, and this isn’t a pattern we can continue to do,” Davidsmeyer said.
Springfield's not the only city dealing with pension issues.
S&P last month said the city of Alton's decision to sell its water treatment facility to shore up its pensions was a one time fix. Alton's credit rating was downgraded to A from A+.
"While we recognize the sale presents a measure of budget predictability in the near term, the city will still have a significantly high pension liability and exposure to escalating pension contributions, and we believe it will need to devise a long-term plan to stabilize its policemen's and firefighters' pension funds," S&P Global Ratings credit analyst Helen Samuelson said.
The Illinois Municipal League has been pushing for various reforms, including pension consolidation.
Taxpayer United of America Founder Jim Tobin suggested another fix.

“The general assembly should allow local governments to declare bankruptcy and restructure their debts so they can keep policeman and fireman employed and restructure their debts that can not be paid,” Tobin said.
Springfield Alderman Joe McMenamin said the pension issue is a problem, even with growing investments from a booming stock market.
“When we get that next recession or we get an actual major correction in the stock market, we are going to be in misery,” McMenamin said. “You think we’re in bad shape now we will be in misery later on.”
Springfield is looking at raising its property tax levy to pay for pensions.
Tobin said increasing taxes isn't the answer. He said if nothing is done, people will continue to leave.
“Illinois has led the nation in outflow of taxpayers, middle-class taxpayers, for four years in a row,” Tobin said.
Tobin said the root of the problem is public workers aren’t putting enough of their own money into their retirement. With pension sweeteners and compounding interest in retirement, he said pensions balloon rapidly with little investment from the worker. He said the state needs to get all public sector new hires into self-managed plans as private employees have.

Silver Member

The reason Illinois pols are out to soak youLet's call it by its name: A graduated income tax in Illinois really is a pension tax to fund the retirement of public-sector employees at the expense of everyone else.
HILARY GOWINS

Crain's illustration

Politicians are good at putting window dressing on something nobody likes. I'll translate. At the national level, the "Patriot Act" is code for sweeping legislation that allows the feds to spy on American citizens. In Illinois, the "compromise budget" is a time-honored political euphemism for a state budget that overspends and does nothing to deal with the state's fiscal problems.
I'd like to propose that we start calling it like it is. Let's start with a favorite policy agenda item this election cycle: the "graduated" or "progressive" income tax, pegged as a way to make income taxation "fair." One state lawmaker went so far as to call his progressive tax plan the "Friendly Act," even though it would have hiked taxes on Illinois residents earning as little as $17,300 a year.
Though it's heralded as a way to level the playing field between the rich and the poor, a progressive income tax isn't about fairness at all. It's a pension tax.
Think about it: What takes up 25 percent of the state budget and is growing by the day? Answer: The five state-run pension systems, the sacred cows of the Midwest that cannot be "diminished or impaired" (except when the money runs dry, of course, and that day will come sooner or later, whether we like to admit it or not).

The pension tax is one of many workarounds Illinois politicians have thrown at the wall in a desperate attempt to avoid doing anything to fix the pension funding crises—and, therefore, state and local budget and fiscal crises. Just look at Mayor Rahm Emanuel's grand idea to float $10 billion in pension obligation bonds to cover Chicago's pension debt. J.B. Pritzker took that one straight from Emanuel's playbook and has pitched an $11 billion POB plan for the state if he's elected governor.
This so-called fairer income tax is heralded as a way to ensure "equitable funding of education across the state." That's another land mine. "Increased spending on education" has become code for bailing out teacher pensions at the state level while passing the buck on paying for classroom spending to local school districts. State funding for education jumped 87 percent from 1996 to 2016, increasing by more than $5.4 billion after adjusting for inflation. But two-thirds of that increase—$3.6 billion—went to teacher pensions instead of classrooms. Hiking state income taxes in the name of education would lead to more of the same, barring reform.
A lot of people want to make public policy seem complicated by using coded language and complex proposals, but the truth is actually pretty simple. No matter what anyone says, there are two paths for Illinois. Politicians can move forward with a constitutional amendment to adopt a pension tax, which would trigger a massive wealth transfer from taxpayers to government worker pensions. Or they can do the right, albeit difficult, thing and pursue a constitutional amendment to reform the state's pension clause to restore a balance between taxpayers and government workers.
There's no middle ground on this one. If we enable the state to renegotiate a reduction in pension payouts, raising more money from a tax hike—whatever the form—would be unnecessary. "Impossible," Pritzker and other Democrats say. But impossible is just another word for unpleasant. Down one road is more and more political posturing as the pension systems go to pot. Down the other is an actual solution to fix the problem at hand.Hilary Gowins is vice president of communications for the Illinois Policy Institute, a think tank that promotes free markets and limited government.

Silver Member

No, unfunded pension liabilities are not measured on the assumption that all workers retire today.
By: Mark Glennon*
Here’s a common myth we often hear about public pensions, recently repeated by Laurence Msall, President of The Ciivic Federation, in a WBEZ interview, when asked what it mean that Illinois has $130 billion in unfunded pension liabilities:If all state workers were to retire today, that would be the obligation that the state of Illinois has — to make payments to them over when they retire — that it does not currently have assets to cover. It’s not likely and it’s really not realistic that all employees would retire at the same time, but it is a measurement of the liability.
Not true. No actuary or accountant measures pension liabilities based on an assumption that all workers retire today, and I’ve never even seen that tried because it would be pointless.

Getting that wrong is part of why some of the public doesn’t understand the scope of our pension problem. In emails and comments here, we often hear the myth repeated, to the effect that we needn’t worry about unfunded pension liabilities because they are just theoretical numbers — based on a false premise that all workers retire today.
Unfunded pension pension liabilities are key because they are the most commonly cited numbers in our pension crisis. Officially, for Illinois’ five state-level pensions, that’s about $130 billion (aside from the 650 or so local pensions).
Those liabilities have traditionally been called UAAL — unfunded actuarially accrued pension liabilities. The modern accounting term is NPL — net pension liabilities. It’s the most frequently measure used for how far pensions are underwater.
Unfunded liabilities represent obligations accrued for work already performed by (in Illinois) Tier 1 workers only. More to the point, they are based on projections about retirement age, not the assumption everybody retires today. Those liabilities would be substantially higher if, instead, all workers were assumed to retire today.
They’re also based on mortality tables and assumptions about returns on invested assets that are widely ridiculed as far too rosy.
Instead, we should apply reasonable assumptions. Moody’s, the credit rater, is one to have moved in that direction. They say Illinois’ five state level pensions have an unfunded liability of $250 billion, not the officially reported $130 billion. Other experts put the numbers far, far higher.
Here’s what Illinoisans should understand, especially pensioners: Even using the rosy assumptions behind officially reported pension numbers, there’s not enough money there to cover Tier 1 work already performed. Nothing is set aside for anybody else.

Silver Member

Pension / Retirement Crisis Is Becoming An Underfunded ‘Tsunami’ According to The SEC
BY THE DAILY COIN · PUBLISHED OCTOBER 19, 2018 · UPDATED OCTOBER 20, 2018

Pension / Retirement Crisis Is Becoming An Underfunded ‘Tsunami’ According to The SEC by Rory – The Daily CoinWe have detailed this problem over the past 3-4 years warning people about how bad the pensions around the nation have become nothing more than another ponzi scheme. Most, if not all, state, local and federal pension programs are underfunded by 40% or more.
What we stated a mere two months ago, in September 2018!

The steam that is building began in earnest in 2012 and has been picking up speed ever since. Look no further than some of the recent events we have documented time and again – Detroit, CALPers, Jeremy Stein, Teamsters and Dallas Pension Fund. All of these events have taken place in less than five years. What will the next four-plus years bring? How much longer should one sit on their hands and watch as thousands upon thousands of people either have retirement stolen or placed on lock-down as is the case with the Dallas Police Pension fund?

****
We have studied, researched and written about this for well over four years. Harry Markopolous, in 2011, tried to warn us about the ongoing theft, within the pension funds, on a daily basis by the banking cabal – link. CALPers pension program is north of 50% underfunded and losing a little more each and every quarter. – link. These are merely two of the articles that paint a picture of a tsunami of pension bankruptcies in the near future.​

That’s a lot of people around the country that are directly impacted by unfunded, underfunded or otherwise completely insolvent pension funds.
It appears either the Forbes writer Elizabeth Bauer or SEC Commissioner Kara Stein read the article we published in September as they are now using the exact same language we used in September – ‘tsunami’ of pension failures.

SEC Commissioner Warns: A Retirement Crisis ‘Tsunami’ Is Approaching
Commissioner Kara M. Stein spoke to the Brookings Institution on Tuesday, giving a talk titled “The New American Dream: Retirement Security.” Here’s what she had to say:
Since World War II, Americans have planned their retirements around the expectation of combining a pension, Social Security benefits, and personal savings to provide sufficient income for their golden years. . . .
Due to a number of factors, the financial health of the Social Security trust fund has been declining. According to the 2018 Trustees Report on Social Security, the fund will be depleted by 2034.That is only 16 years away. At the same time, the availability of employer-provided pension plans has also been declining. Few private sector workers today have access to a pension, and many public sector pension plans are facing severe financial problems. . . .
We’ve moved from a collective retirement system to one in which each person is expected to go it alone. . . .The retirement crisis is a tsunami that is rapidly approaching. We can already see it and, indeed, we are starting to feel its effects. Americans are having to work past traditional retirement age. And the number of bankruptcies for those over the age of 65 has increased dramatically. The size and speed of the tsunami is likely to increase as it gets closer and closer to us. Our population is aging and the cost of medical care—an important factor for retirees—is increasing. We must address this problem before we are collectively underwater. . . .
As an SEC Commissioner, I’m here to talk about solutions specifically related to the third leg of the stool—investments. Stashing away money in a savings account only gets retirees so far. To have a safe and secure retirement, Americans must invest their savings to allow them to grow. . . . Given the importance of investment to Americans’ ability to retire, what can the SEC do to help?
Stein’s talk continues by addressing the need for improved financial education, and suggests the SEC might create a model curriculum for schools, create spelling bee-like contests, and create an app, for instance. They might also work to improve the readability of disclosures in an investment prospectus, with key information up-front, or require that 401(k) disclosures include information on projected retirement income. She revisits the question of the now-discarded plan of holding investment advisors to a fiduciary standard (that is, prohibiting them from steering clients to investments which pay higher commissions) and suggests that a (less-desirable) alternative might be educating investors to ask whether their advisors have conflicts of interest. In addition, because of the impact that severe market downturns can have on retirement-savers, the Commission should, while recognizing that downturns are a fact of life, look at actions to mitigate the likelihood of the most severe market crashes. Source​

I am not a financial advisor so I’m not offering financial advice I just have a simple question – does it really take a “professional advisor” to see the writing on the wall? If you are not at least thinking about this problem, then it may be time. At least look at what is going on within your retirement account, especially if it is with a large corporate or state entity. We made our decision in 2009 and still have zero regrets. As a matter-of-fact I am extremely happy I got out when I did. Sorry I missed out on the gains, but I don’t regret the decision for one second. Got physical; we sure do!

Mother Lode Found

Published on Oct 21, 2018
State and local governments face a $5 trillion dollar unfunded pension liability. In other words, politicians promised workers $5 trillion in retirement benefits, but government doesn’t have the money.

John Stossel asks, how this could happen? City Journal Contributing Editor Daniel DiSalvo tells him, because “nobody was paying attention."

Politicians keep promising government workers better pension benefits, but don’t set aside the money to pay for them.

DiSalvo says that’s because “both parties, Democrats and Republicans have incentives to short the pension fund… For Democrats, if we cannot put as much in, we can free up more money for greater public spending on public programs. If we're Republicans, we probably want to say cut taxes."

City Journal Senior Editor Steve Malanga adds, "5 years from now, 10 years from now, they're gonna have a problem. But 10 years from now somebody else is in office.” So someone will have to pay the bill.

When Stossel asks Malanga for a solution, he answers “reduce the level of benefits ... put more of the contributions towards paying off the debt, and go to individual accounts,” like 401k's, what most people in the private sector have.

So far, neither politicians nor the unions are willing to accept this. Stossel warns: one day, no matter what the promise, we simply won’t be able to keep it.

WASHINGTON - Top lawmakers are considering a taxpayer-funded bailout for retirees who are members of certain failing pension plans, scrambling to solve a retirement crisis that threatens more than 1 million Americans.
A draft of the plan, obtained by The Washington Post, would direct the Treasury Department to spend up to $3 billion annually to subsidize payments for retirees from certain underfunded pensions.
The retirement programs are called "multiemployer" pensions, as workers from multiple companies pay into the same retirement benefit program. But many of these pensions lack the financial assets to cover the benefits they have promised retired workers, leading to a panic from retirees who were counting on the funds. These pensions have often been plagued by mismangement, inaccurate economic projections, and in some cases corporate bankruptcies.
In many cases, the companies these pensioners used to work for no longer exist or no longer participate in the retirement plan.
The federal bailout is one of multiple proposals being considered by a special congressional committee tasked with addressing the pension crisis. The committee has a Nov. 30 deadline to submit a proposed solution, and aides cautioned that negotiations were extremely fluid and that there is a risk talks will unravel.
The aide said the plan reviewed by the Post was one option under consideration and did not represent a final deal.
Negotiators are considering a number of other potential changes to try and shore up multiemployer pension plans, including new fees paid by union members and companies as well as higher premiums levied on pensions, according to the draft reviewed by the Post.
The committee, led by Sens. Orrin Hatch, R-Utah, and Sherrod Brown, D-Ohio, was created earlier this year and charged with producing a plan by the end of this month that could be presented to the full House and Senate for passage.
"The hard-working men and women who are counting on this committee deserve a solution, and Chairman Hatch and I continue to negotiate with other members of the committee to reach a bipartisan agreement," Brown said in a statement Tuesday.
Nicole Hager, spokeswoman for Hatch, said: "Joint Select Committee members are continuing to work in good faith to reach a bipartisan agreement before their Nov. 30 deadline. Members understand that the longer the problems facing the multiemployer system are allowed to continue, the more challenging and expensive they are to solve."

White House officials have been briefed on the status of talks but they have not expressed whether they would support the deal if it is finalized. A Treasury Department spokesman didn't have an immediate comment on the plan.
Lawmakers have for years resisted using taxpayer money to backstop failing pension plans, believing that this would lead to a backlash from voters and also create an expectation that the government will intervene whenever help is needed.
But the dire financial condition of many of these multiemployer plans has forced lawmakers to consider such a move as part of a broader package of changes. A growing number of multiemployer plans are now severely underfunded, and the issue gets worse every year as more people retire and seek benefits they believe they were promised.
Lawmakers from both parties, under pressure from many retired constituents and business groups, have expressed alarm that hundreds of thousands of older Americans could soon see their retirement savings plans vanish or become severely depleted because the pensions were mismanaged or underfunded.
Many people in these pension plans, such as retired truck drivers, grocery store clerks, and delivery workers, were employed by companies that went out of business. And many of these multiemployer pensions were underfunded, meaning they anticipated higher returns and lower payouts than what occurred. As problems worsened, taxpayer assistance was seen by many experts as inevitable.
"We bailed out Wall Street in 2008 and 2009," said Kenneth Feinberg, who was appointed to a top role at the Treasury Department in 2015 working on problems with multiemployer pension plans. "Bailouts have occurred before."

Moderator

No, unfunded pension liabilities are not measured on the assumption that all workers retire today.
By: Mark Glennon*

Here’s a common myth we often hear about public pensions, recently repeated by Laurence Msall, President of The Ciivic Federation, in a WBEZ interview, when asked what it mean that Illinois has $130 billion in unfunded pension liabilities:

If all state workers were to retire today, that would be the obligation that the state of Illinois has — to make payments to them over when they retire — that it does not currently have assets to cover. It’s not likely and it’s really not realistic that all employees would retire at the same time, but it is a measurement of the liability.​

Mother Lode Found

As we've been saying for a long time, America's dangerously underfunded defined-benefit corporate and public pensions are little more than lavish Ponzi schemes designed to swaddle one generation of retirees with lavish benefits (a fixed monthly income and health benefits until death), while siphoning payments from a younger generation that will never reap the benefits (what's worse, these "contributions" have been climbing, even as funds have been forced to raise fees and contributions, which has done little to address the underlying issue).

While public pensions funds have hogged most of the media spotlight, Congress has been quietly taking steps to address a more vulnerable sector of the pension space. To wit, a bipartisan group of lawmakers sneaked a provision into this year's budget deal that established a committee to decide how to prevent the retirement benefits of 1 million Americans from evaporating once thousands of failing "multiemployer" plans finally collapse into insolvency.

That committee was given a deadline of Nov. 30 to propose a solution. And while many ideas have been bandied about (including raising fees, levies and contributions on healthy plans to subsidize their failing cousins), from the beginning, it's difficult to imagine how this $500 billion shortfall (the aggregate underfunding of these corporate pension plans, according to an estimate from Boston College) could be covered without the American taxpayer footing the bill. Adding to the urgency, nearly one-quarter of the 1,400 multiemployer plans in the US are in the "red zone," meaning they will likely go broke within the next decade. And if the recent bout of turmoil across virtually all asset classes continues, the day of reckoning could be hastened. Particularly if the low returns on conventional assets force these funds to place riskier bets on alternative strategies like hedge funds, something that many funds did in desperation during the ZIRP era.

So it shouldn't come as a surprise that, in the first draft of its plan to save these pensions, the committee proposed restoring the Pension Benefit Guaranty Corporation (PBGC) to solvency with - you guessed it - taxpayer backed "subsidies" from the Treasury to the tune of $3 billion a year. The plan is also considering raising premiums, introducing new fees and - importantly - cutting benefits.

A draft of the plan, obtained by The Washington Post, would direct the Treasury Department to spend up to $3 billion annually to subsidize payments for retirees from certain underfunded pensions.​

It would also require benefit cuts, higher premiums and new fees levied against companies and union members in an attempt to make the pensions as financially solvent as possible. The proposal aims to require all parties involved to make significant concessions and caps taxpayer contributions.​

The retirement programs are called "multiemployer" pensions, as workers from multiple companies pay into the same retirement benefit program. But many of these pensions lack the financial assets to cover the benefits they have promised retired workers, leading to a panic from retirees who were counting on the funds. These pensions often have been plagued by mismanagement, inaccurate economic projections and in some cases corporate bankruptcies.​

​

Unfortunately, that $3 billion isn't nearly enough to cover the shortfall, which is why the plan also calls for other streams of capital. According to the Washington Post, the leaked draft proposal is only a rough sketch of one of several alternatives being considered by the committee (translation: this is the trial balloon). What's perhaps most surprising about the plan is that it has bipartisan backing: This is a bipartisan effort, as neither party is ready for the political backlash of hundreds of thousands of retirees forced into bankruptcy and the poorhouse (after all, retirees vote).

We bailed out Wall Street in 2008. So why can't be bail out the boomers, too?

But the dire financial condition of many of these multiemployer plans has forced lawmakers to consider such a move as part of a broader package of changes. A growing number of multiemployer plans are now severely underfunded, and the issue gets worse every year as more people retire and seek benefits they believe they were promised.​

Lawmakers from both parties, under pressure from many retired constituents and business groups, have expressed alarm that hundreds of thousands of older Americans could soon see their retirement savings plans vanish or become severely depleted because the pensions were mismanaged or underfunded.​

Many people in these pension plans, such as retired truck drivers, grocery store clerks and delivery workers, were employed by companies that went out of business. And many of these multiemployer pensions were underfunded, meaning they anticipated higher returns and lower payouts than what occurred. As problems worsened, taxpayer assistance was seen by many experts as inevitable.​

"We bailed out Wall Street in 2008 and 2009," said Kenneth Feinberg, who was appointed to a top role at the Treasury Department in 2015 working on problems with multiemployer pension plans. "Bailouts have occurred before."​

Of course, saving multiemployer funds would be like putting a band-aid on a gunshot wound. Because public pension funds are an even larger ticking time bomb . They're facing a $7 trillion shortfall, a problem that is almost too big to contemplate. But repairing the PBGC seems like a logical first step. Like the FDIC, the PBGC is an insurance program funded by premiums paid by its participating members (pensions). Its entire income is made up of premiums collected and the investment income it earns on those premiums.

As WaPo explains, the PBGC, which was created in the 1970s, is extremely underfunded. The fund had nearly $70 billion in liabilities last year compared with $2.3 billion in assets. And since the fund's only sources of revenue are fees it collects from its members, and returns on its investments, once markets crash and more members start to fail, the drop in revenue risks triggering a vicious cycle.

The Pension Benefit Guaranty Corp. was created by Congress to provide a financial backstop for pension plans, but the PBGC’s program to insure multiemployer plans is severely underfunded. It had $67.3 billion in liabilities as of last year and just $2.3 billion in assets. The entire fund is projected to run out of money by 2025, although the agency said "there is considerable risk that it could run out before then."​

Last year, the PBGC provided $141 million in assistance to 72 insolvent multiemployer plans, and there are several others listed as "critical" and likely to soon become insolvent.​

Lawmakers have been particularly alarmed about one faltering plan called Central States Teamsters, which has 400,000 participants and whose members include retired truck drivers, among others.​

Once the PBGC’s fund to pay multiemployer plans runs out of any money, the agency would be able to pay only a “small fraction” of the pension benefits that retirees were expecting, the agency said last year. Because PBGC was created by Congress for the purpose of protecting pensions, some experts believe that emergency government assistance was always anticipated.​

"When...people’s livelihoods will be lost, government has always stepped up to back its own creations," said Joshua Gotbaum, who served as director of the PBGC from 2010 until 2014.​

A pension-fund crisis could cause real, tangible harm to millions of Americans. Given the severity of the risks, it's surprising that they aren't more widely discussed.

God,Donald Trump,most in GIM2 I Trust. OTHERS-meh

it's difficult to imagine how this $500 billion shortfall (the aggregate underfunding of these corporate pension plans, according to an estimate from Boston College) could be covered without the American taxpayer footing the bill.

The writer of the article fails to consider - These corporate pension plans were developed by and for people that work and have paid taxes for decades. Depending on the state the retiree lives in his pension also gets taxed.
This is not near as serious as the Parasite Society that .gov allows to spawn babies as "Pay increases" and sits at home all day long watch mind pablum such as "YOU ARE the FATHER" and "I love my sibling's/s' spouse(s)".... just to name two.

I will not blame the working class of America for this shit. I blame the Federal Reserve and Wall Street fat cats that have tweaked their obligations LOWER for their over compensated gains and ruining the current national economy.

Last edited: Nov 25, 2018

As in the Past it is Today : HELL hath no Fury like a Woman Scorned be it 1 / 2 or 3 Years or One /Two or Three DECADES.
gbI have come to the conclusion "Anonymous Sources" are those little voices PROGS and LameStreamMedia hear in their heads. "Russia,Russia,Russia"

"DONALD J. TRUMP a President without a Party but a Nation Has His Back". - Gb

" We have gold because we can not trust our governments". - President Herbert Hoover , 1933

Gold Member

The writer of the article fails to consider - These corporate pension plans were developed by and for people that work and have paid taxes for decades. Depending on the state the retiree lives in his pension also gets taxed.
This is not near as serious as the Parasite Society that .gov allows to spawn babies as "Pay increases" and sits at home all day long watch mind pablum such as "YOU ARE the FATHER" and "I love my sibling's/s' spouse(s)".... just to name two.

I will not blame the working class of America for this shit. I blame the Federal Reserve and Wall Street fat cats that have tweaked their obligations LOWER for their over compensated gains and ruining the current national economy.

Pensions (and securities/equities) depend upon perpetual economic growth. When the Marxists take over and install regressive taxation and burdensome regulation that stifles that growth in order to set up their nanny-state government, they're (knowingly?) killing the very engine that the markets and pensions depend upon to sustain retirements. Irony 101.

Gold Member

Pensions (and securities/equities) depend upon perpetual economic growth. When the Marxists take over and install regressive taxation and burdensome regulation that stifles that growth in order to set up their nanny-state government, they're (knowingly?) killing the very engine that the markets and pensions depend upon to sustain retirements. Irony 101.

In October 2011, state government employees campaign against pay and pension reform at the Illinois State Capitol in Springfield. PHOTO:SETH PERLMAN/ASSOCIATED PRESS
Adjusted for inflation, state and local government revenues have more than doubled since the 1970s. But state and local politicians haven’t collected nearly enough taxes to pay for the retirement promises they’ve made to their friends in government employees unions. So government pension fund managers are now rolling the dice. Heather Gillers writestoday in the Journal:

U.S. public pension funds are taking on more real estate, and at times some of the riskiest types of property investments, as they try to close their funding gaps...​

Most large retirement systems don’t have enough assets on hand to pay for all future benefits owed to firefighters, police officers, teachers and other public workers. Estimates of governments’ combined unfunded promises to workers nationwide range from $1.6 trillion by the Boston College Center for Retirement Research to $4 trillion by Moody’s Investors Service, and the funding shortfall is straining taxpayers and putting pension promises in jeopardy.​

Nowhere are taxpayers in greater jeopardy than in Illinois. Crain’s Chicago Businessreported in August:

Illinois Teachers’ Retirement System, the state’s biggest pension fund, is relying heavily on risky, expensive investments as it tries to claw its way out of a quicksand of unfunded pension liabilities.​

The pension fund, which has only enough money to cover 40 percent of its future obligations, has steadily increased allocations to private-equity funds and only recently reversed course on investing with hedge funds despite lackluster results for both.​

That TRS investment strategy poses a threat to pensioners’ retirement income and stands to exacerbate the burden for taxpayers already on the hook for $138 billion in unfunded liabilities across all Illinois pensions.​

The story doesn’t necessarily look better when one examines some of the specific beneficiaries of government pension systems. Steve Cortes writes in RealClearPolitics:

I grew up in Park Forest, Ill., a working-class suburb of Chicago. In my youth, Park Forest was pleasantly middle-class -- a solid community of well-kept lawns, strong churches, and active sports. Unfortunately for my hometown, times have been tough over the years, reflected by a jobless rate about twice the national one and a poverty rate 43 percent higher than the state of Illinois average. As a consequence, Park Forest has lost almost a third of its peak population of 30,000 since the 1970s.​

But like many such struggling communities, one class of people has found a way to prosper: public employees. Recently, Fox affiliate Channel 32 and Open the Books detailed the exorbitant pay package for part-time interim school Superintendent Joyce Carmine. She retired in 2017 making $398,000 annually, the highest-paid superintendent in Illinois, in a community where the median household income is $44,000. She will receive, courtesy of taxpayers, a pension of just under $300,000 for the rest of her life. Adding insult to injury, the school district hired this retiree back as a consultant at the rate of $1,200 per day for a total of 100 days, bringing her pay this year to $419,000 total for part-time work. Given the modest $75,000 median home price in Park Forest, her salary equates to 5.5 home purchases…per year.​

If you can believe it, the story gets worse. According to Mr. Cortes, most students in the school system don’t meet state academic standards and by the time “those students matriculate to the local Rich East public high school, only 16 percent meet expectations and a truly shocking 0 percent exceed them.”
The photo accompanying today’s column shows a 2011 political demonstration in Illinois and a poster created by a government employees union which reads, “Defend the Middle Class.” But as in other states, many government workers in the Land of Lincoln have long since left the middle class. Mr. Cortes adds:

All told, over 94,000 total public employees and retirees in Illinois command $100,000+ salaries from taxpayers, such as the “power couple” of Lewis and Clark Community College, Dale and Linda Chapman, who made a combined $690,000 last year, or former Chicago Mayor Richard M. Daley, who earned a $140,000 pension for his eight years of service in the Illinois legislature.​

Silver Member

Wouldn't you think Illinois would at least put in a new system for newly hired individuals if they were in fact serious about fixing thee problem?

Illinois Supreme Court tosses law aimed at stopping union boss pension abuses
Former Chicago Federation of Labor President Dennis Gannon, speaking at a rally in 2010, received a pension of more than $150,000 a year after retiring from a $56,000-a-year city job that he left nearly 13 years earlier. (Antonio Perez/Chicago Tribune)

When Illinois lawmakers found out seven years ago that major labor leaders were significantly pumping up their taxpayer-funded pensions by basing them on their larger union salaries, state officials swiftly approved a law to rein in the windfalls.
Union executives cried foul, however, saying the changes spurred by a Chicago Tribune/WGN-TV investigation were an overreach. And after a lengthy legal battle, the Illinois Supreme Court has sided with the unions, ruling the changes unconstitutional and striking a blow to lawmakers’ reform efforts.
The court’s unanimous ruling last week that once again illustrated how difficult it is to cut back public pensions. Justices cited a provision in the Illinois Constitution stating that pension benefits, once granted, “shall not be diminished or impaired.”
If that sounds familiar, it’s because the court has turned to that same provision to throw out major efforts by both state government and City Hall to reduce pension costs in recent years.

The city ruling led Mayor Rahm Emanuel to increase property taxes, boost the 911 emergency telecommunications fee attached to phone bills and put in place a new sewer and water bill tax to start contributing more money to four city pension funds covering police, firefighters, municipal employees and laborers.
The state still has to fix its woefully underfunded government worker pension system, which carries a shortfall of more than $100 billion.
A small part of that debt is due to a long-running practice at the Capitol of approving pension sweeteners for political allies. In September 2011, the Tribune and WGN foundthat nearly two dozen labor leaders from Chicago stood to reap benefits that could cost ailing local pension plans tens of millions of dollars over the course of their retirements. At one point, federal authorities even subpoenaed records on the inflated city pensions.HARSH TREATMENT: Tribune investigation finds political dealmaking contributed to financial crisis in Chicago and Illinois pension funds »
The law allowed union members to take a leave of absence from their public employment to work in high-ranking union jobs, earn years of public service credit for their union time and base their taxpayer-funded pensions on the more lucrative union positions. Union official pension benefits also could be based on a labor leader’s last four consecutive highest-paid years in the decade before retirement.
The Illinois General Assembly approved a series of changes designed to base the pensions of union officials on their salaries and tenure from the lower-paid government workers positions. Then-Gov. Pat Quinn signed the reforms into law in January 2012.
The state Supreme Court, however, found those changes violated the state constitution, which protects pension benefits once they’re granted.
“We find nothing in the case law, in the text of the pension clause, or in the constitutional debates on the clause that would support the state’s argument that the particular benefit conferred here is not entitled to protection,” according to the opinion written by Justice Robert Thomas.
“The state’s contention that the delegates and voters did not intend that the benefit at issue would be protected by the pension clause is pure speculation and appears to be manifestly inaccurate,” the opinion continued.
The suit that overturned the state law was brought by blue- and white-collar city employees as well as Chicago teachers and their unions against their public pensions funds. The law’s constitutionality was defended by the attorney general. Union representatives had no comment following the ruling.READ MORE: Borrowing billions to lower Chicago's pension debt? Emanuel's finance team is considering it. »
Some historical context: Since the 1950s, city workers who take leaves of absence to work full time for unions have been able to remain in city pension funds if they choose. The time they spend at their union jobs counts toward their city pensions.
But few labor leaders took the deal until the law was changed in 1991 to base those workers' city pensions on their union salaries instead of their old city paychecks, dramatically boosting the amount they could receive.
Because that 1991 law bases city pensions on the labor leaders’ union salaries, they received retirement benefits that far outstrip the modest salaries they made as city employees. On average, their pensions are nearly three times higher than what the typical retired city worker receives.
High-profile examples that triggered the 2012 changes included such top earners as:
•Liberato “Al” Naimoli, president of the Cement Workers Union Local 76. He retired from a $15,000-a-year city job that he last held a quarter-century ago. Naimoli received more than $13,000 a month from the city laborers' pension fund even as he continued to earn nearly $300,000 annually as union president.
•James McNally, former vice president of the International Union of Operating Engineers Local 150. He received nearly $115,000 a year even though at the time he retired, in 2008, he had not worked for the city in more than 13 years. He was only 51 when he started collecting a city pension.
•Dennis Gannon, former president of the Chicago Federation of Labor. In 2004, he began receiving more than $150,000 a year after retiring at age 50 from a $56,000-a-year city job that he had left nearly 13 years earlier. He received his city pension while collecting a salary of about $200,000 from the federation. As in most cases, Gannon told the Tribune at the time that he was only following the law in filing for a city pension.
The state Supreme Court ruling tossed out the changes for workers and retirees who already were covered by the pension system before the law took effect in January 2012. But the ruling did not address whether the law has been invalidated for people who became public employees after it took effect.rlong@chicagotribune.com